Estonian economic growth decelerates, but outlook is better

According to the second estimate of Statistics Estonia, GDP growth decelerated to 1.1% in real terms in the first quarter this year. Compared to the previous quarter, seasonally and working day adjusted GDP decreased by 0.3%. GDP decreased two years ago the last time.

Manufacturing sector, primarily electronics and wood production, contributed the most to the economic growth already third quarter in a row. At the same time, production volume of electronics has decelerated this year. The growth of the manufacturing sector was inhibited by the decrease in the value added of food, paper and chemicals’ industry. Main reason is the drop of exports to Russia, in case of chemicals to Latvia, as well. Transport sector and real estate activities inhibited GDP growth the most. Transport sector has decreased already for more than two years in a row, primarily due to the increased competition of the Russian cargo ports and recently, of the decreased demand from Russia.

Labour productivity decreased second quarter in a row as the growth of value added decelerated faster than hours worked. At the same time, labour costs increased, therefore, accelerating the growth of unit labour costs.

Although investments decreased by 8%, the drop was not broad-based and came primarily from the agricultural and energy sector. Despite the decrease in investments, these economic activities are among the largest investors in Estonia. Households increased their investments in dwellings, while government investments remained roughly on the same level as a year ago.

Deceleration of the growth of electronics production, as well as problems with the Russian market inhibited the growth of total exports from Estonia. Exports of goods and services increased by 2%. Deceleration of the export growth was expected. Together with the deceleration of the growth of production volume and drop in investments, import decreased, as well.

The growth of household consumption decelerated to 2% in the first quarter this year, primarily due to the decrease in consumption of alcoholic beverages and tobacco and less consumption on housing.Consumption of alcoholic beverages and tobacco has decreased already a year in a row. Increased consumption of foodstuff, transport, recreation, restaurants’ and hotels’ goods and services contributed the most to the household consumption referring to the increase in households’ real income. Household consumption has been and will be the main contributor to the economic growth in the coming quarters.

Weak industrial sector data in April refer to the possible continued deceleration of economic growth in the second quarter. Despite of that we are not going to revise our GDP forecast for this year (2.1%), yet. Strong decrease in export to Russia continues in the coming quarters, but the economy in Europe is gradually recovering.

Source: Swedbank



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